Mortgage Rates Soaring: Remember the Good Old Days When .gov Didn’t Run the Show?

Posted on September 17th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

I believe this colorful Sept 17th mortgage market update sums up what we have all been screaming would happen it .gov was forced to run the game.  This story has been posted in its entirety for your reading enjoyment…or not if you are in the mortgage or real estate business, or are a home owner/buyer in need of financing. -Best Mr Mortgage

By Rob Chrisman – Director of Capital Markets, RPM Mortgage, Alamo, CA

“I was lying awake the other night, worrying about all of the debt on my credit card. The jet ski, mink socks, the ATV, my new plasma TV, ruby encrusted dog food bowl, surround-sound stereo – they are great, but darn they cost a lot. And then it dawned on me: it wasn’t my fault! It was the credit card company’s fault! All of those radio ads that claim to help people “Get back at those credit cards companies” must be telling the truth. Seriously, yes, the credit card companies are guilty of making it easy to purchase goods, including necessities, and charging some pretty hefty rates, but they add liquidity to the economy. Really, who is responsible for spending beyond their means in the first place? Despite the radio ads, it is not the credit card companies, or the retail vendors…

Who is AIG (American International Group), and why should you care about them? AIG is a worldwide conglomerate made up of hundreds of businesses all over the world, although many of AIG’s subsidiaries wrote insurance of various types. They are believed to be the world’s largest insurer in spite of not being a household name here in the US. Interestingly, the plan was to have business cycles in some businesses offset cycles in others, giving AIG a steady stream of revenue. Smart. Lately, as we all know, AIG is bogged down in the mortgage crisis, since a) they insured many intra-bank and loans and mortgage securities, along with insuring complex mortgage debt derivatives, and b) some of its insurance companies own large mortgage-backed securities holdings. The Fed believes that the complexity of AIG ‘s business, and the fact that it does business with thousands of companies around the globe, make its survival critical. The US government, thereby the taxpayer, loaned them $85 billion for two years and now owns 79.9% of AIG! (Along with 100% of Fannie and 100% of Freddie.) Taxpayers are all hoping for a rally in AIG’s stock!

Were your locks up last week? Join the crowd. As pipelines move among lenders (which may eventually catch up with them!) the MBA Mortgage Applications Index showed a 33% increase over two weeks ago. Refi’s almost doubled, up 88%. (Purchase applications were up 2.4%.)  Housing Permits, which were announced today, dropped to a 26-year low. Starts of new homes fell 6.2% to the lowest in 17 years, and much weaker than expected.

Lehman is peeling off parts of their business. For example, Barclay’s reportedly purchased their investment bank and trading operation. Oil is up $3 per barrel, and the Fed left overnight rates unchanged. How is the market reacting to all of this? Treasury rates are down more (the 10-yr is down to 3.36%!) but 30-yr fixed rate mortgage prices are worse by about .250. As one dealer put it, “A flight to quality right now means U.S. Treasuries, not mortgage-backed securities.”

As I careen towards retirement, I saw a story that the Senate is investigating deceptive sweepstakes practices. These companies target the elderly and make them think they will receive sums of money, but in reality senior citizens never see any of it.

The most popular of these scams is called “Social Security”.

29 Responses to “Mortgage Rates Soaring: Remember the Good Old Days When .gov Didn’t Run the Show?”

  1. Mr Mortgage,

    Thanks to you I may be one of the few people in this game to survive. After reading your analysis, quotes recommendations etc… I was able to focus my research much better.

    I moved my funds to one majorly conservative fund. Government Bonds 26%, Cash 33%, Property 20,3% (The fund owns shopping malls that are fully owned using our money and pay out rent every month – less risk even if retail goes bang), Shares 20% – 2 telecoms companies, 1 Beer monopoly, 5 gold mining companies, 1 Bank (unfortunately). I did all this when none of these investments were popular thanks to your advice.

    I know I will lose eventually on the shares, property – but overall I am in a very strong position. When we eventually hit bottom 2009 / 2010. I will move back into growth funds.

    I would like to thank you for the amount of free and factually accurate information you have given us all here. I pray that this site rewards you not just financially but spiritually. To know that you have helped so many people to see the truth through the lies should give you more satisfaction then all the money in the world.

    Continue to do and say what is true always and not what is popular and you will have a loyal following for years.


  2. Hmmm….. rates are up a quarter? that’s a problem? exponentially better than the first adjustment on a libor arm with an 8% margin, huh? all i’ve got to say is this industry is way over due for a healthy dose of oversight and regulation. Mudd took home nearly a HALF BILLION dollars in his 15 years at Fannie Mae. If that is not some indicator of where the problem started and ended then i must be getting old. Let us hope they bring a few old FHA guys out of retirement to run the show.

  3. Hey MM, where do you think the 30 year fixed rate is headed in the next 3 months? Seems to be a lot of speculation on this.

  4. Are we seeing the beginning of another great depression?

    The fed is expanding it’s balance sheet (which will cause inflation. Nobody is trusting the balance sheets of banks.
    everyone starts hording their money, isn’t this the recipe for another depression?

    I keep hearing how there is so much liquidity out here, am I missing something?

  5. The US Treasury on Wednesday announced it was creating a supplemental funding programme to ensure that the Federal Reserve has the cash it needs, and that its ability to provide emergency liquidity support for the markets is not constrained by the size of its own balance sheet.

  6. Hey MM, just want to thank you for all the work and information. I started following your blog since Jan 08 and really learned a lot. Nice work. Please keep going! -readers from Taiwan

  7. Since Rob Chrisman seems to think

    The most popular of these scams is called “Social Security”

    , would he prefer the program to have been privatized and in the ‘care’ of Bear Sterns, Merril Lynch & Lehman Bros.? Idiot.

  8. When people shut down spending, and the economy further contracts, and then everyone runs to its bank to withdraw all of there cash, it won’t matter how much liquidity the Fed has. They have pretty much screwed everybody.

  9. There’s a fortune to be made in this misery. I’m going to open a store selling nothing but mattresses and wheelbarrows so everyone will have a place to put their cash and to carry it about. Of course, when it’s all done and said for, it might take a wheelbarrow of cash to buy a sandwich in this country. But I’ll still be ahead, since it’s going to take 10 mattresses full of cash to buy that wheelbarrow from me.

  10. I don’t think Americans are capable of not spending. ; )

  11. I guess Bill didn’t get on TV and scream for a bail out quick enough on this one….

    Sept. 17 (Bloomberg) — Bill Gross’s Pimco Total Return Fund, the world’s largest bond fund, fell 1.4 percent yesterday, the biggest one-day decline in more than three years, according to data compiled by Bloomberg.

    The loss, which compared with the 0.38 percent drop by the benchmark Lehman Brothers Aggregate Bond Index, came as the U.S. government moved to seize American International Group Inc., the largest U.S. insurer. The fund guaranteed $760 million of AIG debt as of June 30, part of a larger bet by Gross that some beaten-down corporate bonds will recover because they are too important for the government to let fail.

  12. The Fed is adding plenty of liquidity. The problem is that (banks) lending it out as the Fed thinks will happen when they add liquidity, isn’t happening. Firms are not lending to each other because the fear of defaults is too great. Besides, why lend it when you need it to keep your own doors open?

  13. People are cutting back and losing their jobs. This is a contraction and it’s causing deflation. Most things outside of the grocery store are getting cheaper. Even oil is sliding down. Demand destruction is going on. Liquidity is nice, but if people wont or cant borrow and they’re afraid to spend…how do you get inflatiom? US Govt spending, that’s how. $40B in new T Bills today. How many later on? Gold going into orbit. Looks like global panic. Hope I’m wrong.

  14. Hoarding is the new mantra on the street…

    I find it funny to hear people suggest that AIG is out of the woods and solvent. They are nothing of the sort. Us “Tax Payers” for once didn’t actually take receivership of the company. Sure we may own 79.9% if defaulted (which I think they ultimately will do), but for now we have just given a rather high priced loan to them (13.5% Wow!). If they cannot sell their assets to pay it back, which is no picnic in this market right about now, then they will end up in default. AIG is far from out of the woods people and by the way the $85 Billion was for short term needs to stay solvent. If AIG doesn’t get their act together rather quickly and they end up getting downgraded yet again, which is highly likely, then were talking another $20 Bilion could be required. Default is still on the cusp for these folks and that is why you saw the volatility in the markets today IMO.

    WaMu is obviously next as we all have known, and I personally have been saying for the past two weeks. Look at Barclays play on Lehman and do you really think someone will step in while the iron is hot or wait until things cool and snag what they specifically want at a bargain? Nobody is stupid enough at this point to take on Billions of losses when if they simply let the “Tax Payer” foot the bill via the FDIC then they can swoop in afterwards and pick from the carcus what they want on the cheap.

    Wachovia will more than likely be saved via a Merril type deal and many small regional banks will start going belly up within the next 2 months from the Lehman fall out and the CR downgrades, which by the way will be HUGE!!!

    Much to still come and we have the beauty of our continually voted in career politicians via the Sheeple and incompetent and corrupt appointed leadership to steer us out of this mess. Feel warm and cozy inside do you? Feel that everything will just be OK as they have our backs? Feel like your truly being represented in each and every “Tax Payer” decision landing decades of debt on your children’s, children, children? Feel like you can explain the change in the standard of living in our country to your children in the next few years? Do you honestly really and truly feel all warm and fuzzy inside that you are truly well represented and your family is being well cared for by our current politicians that are in office? REALLY???

    Please join me in voting each and every incumbant out of office in 2008!!!

  15. I believe the $40 billion really doesn’t increase the money supply here. The US Treasury auctioned off the money, hence they received $40 billion and then loaned that to the Fed. So, unless the Fed later on prints money to pay back the loan, then that transaction did not increase the money supply. (I’m ignoring any multiplier effects of course.)

    That’s my understanding, but feel free to correct me if that’s not right.

  16. Peterb, we have rampant inflation on the horizon, but right now we have massive deflation that far exceeds the inflation factor. In fact inflation unless your spending does not show up at all, but deflation is whacking the crap out of everthing and everybody. Given time however and a few more failures and stupid Fed policies and inflation will begin to exceed deflation.

    Once the so called Big Ben helicopters arrive and start dumping we will be officially doomed. A tanked currency around the globe and failed policies that consume themselves and all of us that live within them. The end game will be like th treasuries (.04 today?) and basically equal ZERO!!! Welcome to the NEW America…

    We the people of this once great land are now the largest insurers in the world and the largest homeowners. Who would of thunk?? I want a few mortgages to pin on my wall and a life insurance or two. I mean heck I have a lot of skin in this game that I never agreed to so I should at least get some paper to hold to as collateral shouldn’t I??? Don’t you want something to hold in your hand to represent what you now owe for these idiots mistakes? Simply unbelievable…

  17. The Alternative / Internet Community was onto this over 2 years ago (banks, builders, real estate, other financials, peak oil & etc.

    So ANOYONE on WALL STREET that DID NOT SEE IT COMING was either BLIND or a LIAR or both as usual.

    Since August and the FED’s caving to Wall St with rate cuts and etc. I have been calling every elected official.

    Please join me and quit bitching to each other and call every elected official you can and say HELL NO TO WALL ST WELFARE.

    It does make a difference – trust me – it is an election year.

    P.S. Thank you Mr. Mortgage for all your work.

  18. You will end up like in Argentina.

  19. You will recall that some top Bush aides a few years ago caused a bit of a stir by stating that they would be pleased to provoke a financial crisis in order to provide impetus to privatize Social Security.

    These outrageous positions actually awoke a few members of the media from their coma. But of course they went back to sleep and everyone has forgotten this, because their long-term memory has been erased by television.

    Tony Buzan

  20. 3 month LIBOR marked its biggest jump in 9 years, According to some estimates, loans and derivative contracts totaling roughly $150 trillion — more than $20,000 for every person on Earth — are indexed or tied to Libor in some way.

    The TED spread is spiking and CDS rates for goldman and morgan are spiking as well. Asian stocks are bleeding.

    WaMu is up for auction?!?

    Russian stocks fell precariously.

    Gold’s biggest spike upwards since 1980

    T-bills seeing rates not seen since World War 2.

    Fed beginning the printing presses. Madness spreading. Thank you Mr Greenspan, Bernanke, Paulson and Bush.

  21. ***NATE — Suggestion for a better product offering at your store. Rather than a wheelbarrow, sell a dolly with compartments. This is much better for transporting a mattress. Heck, a twin mattress could be tied off and all you have to do is set the dolly down, and bam!!! Instant bed. The use of compartments on the dolly would allow the individual to carry their cash. Some compartments could be insulated for food carrying. Don’t forget the need to carry some water, too. While your at it, have a removable heavy duty container (a bag type), to allow the individual to pick up cans in order to make money during the next depression. Mobile Living as a store name?

  22. would he prefer the program to have been privatized and in the ‘care’ of Bear Sterns, Merril Lynch & Lehman Bros.?

    So you’re saying it’s safer in its current form? You sure about that?

    Be careful when you call people idiots, sometimes your finger points the wrong direction.

  23. TONY – you know, in the back of my mind, I’ve wondered if some of this was done on purpose.

  24. Nah! They are just to dumb for that. You do the crap and then you find a way to profit from handsomely. Anyways these bums will retire like Mozilo with theit stash of cash, like Big Dick. You would need a hit squad to make an example of some these guys. Banksters and politishitians. Unfortunalately there control the killers too. You see there are protected on all sides. No Hope in the USA. The best thig that could happen would be a bank holiday. It’s coming after the election.

  25. The mattress, the wheel barrow, nor the trunk will be of any benefit if you don’t have fire power to protect them!

  26. interesting post about Pimco and Agency MBS, perhaps, a panic response, but it prompted me to close out my account in a short term federal agency fund (heavily invested in short term FHLB issues), and transfer the funds to a short term treasury one, as capital preservation, not return, is of primary importance right now, and it is something that I have contemplated for quite awhile, anyway

    for me, federal + mortgage is not something that I want to be involved with, at least not for awhile

  27. […] This is What Financial Armageddon Feels LikeAgency MBS Hammered – PIMCO Begging For ANOTHER Bailout!Mortgage Rates Soaring: Remember the Good Old Days When .gov Didn’t Run the Show?Meredith Whitney Scares the Crap out of EveryoneMr Mortgage: Be Careful – False Bottom in Defaults […]

  28. […] This is What Financial Armageddon Feels LikeAgency MBS Hammered – PIMCO Begging For ANOTHER Bailout!Mortgage Rates Soaring: Remember the Good Old Days When .gov Didn’t Run the Show?Meredith Whitney Scares the Crap out of EveryoneMr Mortgage: Be Careful – False Bottom in Defaults […]

  29. “Liars, and the Lying Lies They Are Telling You”

    “Privatizing Profits and Socializing Losses: How the Rich are Staying Rich”

    “Conspiracies and Headlines – What’s the Difference?”

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